You Credit Score: How's Your FICO?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to just one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, the differences aren't huge; all of the agencies use the following factors in calculating a score:

  • Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you have? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most borrowers getting a mortgage loan score 620 or above.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the FICO score is based on a lifetime of credit history, it's very difficult to change it quickly. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Getting your credit score

To improve your FICO score, you must get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. They also provide helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your FICO score? Give us a call: 469-640-0400.

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